Wages, tax cuts and GST.
Australia’s retail sector continues to face challenging operating conditions, with high levels of competition, increasing digital disruption, and weak household income growth putting a brake on growth in prices and spending.
According to Deloitte Access Economics’ latest quarterly Retail Forecasts subscriber report, real (inflation-adjusted) retail turnover growth was 2.6% for the year to March 2018 and overall real retail turnover is expected to lift modestly from 2.4% growth in 2017-18 to 2.6% in 2018-19.
Deloitte Access Economics partner David Rumbens said, “Current growth is being driven primarily by categories closely tied to the housing market which have benefited from now cooling higher property prices, while intense competition in apparel and department stores has resulted in falling prices but rising sales volumes.
“Strong population growth also presents good news for the sector, but risks remain around slower wealth accumulation, high household debt, and increased online disruption.”
After a stellar performance in 2017, the outlook for the labour market is for weaker job growth, and wage growth remained stuck at 2.1% in the opening quarter of 2018.
“We do expect wage growth to edge higher through the year as the labour market tightens a little, and stronger wages will be excellent news for retail spending, driving a broad-based pick-up in spending power acrossd the workforce,” Rumbens said.
Rumbens said retailers would have welcomed the 2018 Budget, which featured income tax cuts estimated to put around $13.4 billion back into consumer pockets over the coming four years.
“Given the weak wage environment, these tax cuts are a welcome development for household budgets. And for retailers, the sector is likely to be a major beneficiary of the improved household income position,” he said.
The entry of overseas retailers and increasing penetration of online platforms continues to offer an abundance of choice for Australian consumers, and heavy price discounting for retailers as they compete for market share, particularly in household goods and apparel.
“Regardless of category, retailers that offer omni-channel solutions, create brands that align with consumer values, and harness new paths to purchase will be the longer term winners,” Rumbens said.
“With GST not payable on smaller purchases from overseas online platforms, some domestic retailers believe they have been at a disadvantage when it comes to prices and margins. But this is about to change, and the industry will be watching closely as GST on these smaller purchases comes into effect on 1 July.
“Amazon’s announcement that it will not collect GST on Australian purchases, and restrict locals to the smaller offering of its recently launched Australian site has made the headlines. But others are, perhaps reluctantly, embracing the change.
“This may cause some consumer angst in the short-term, but overall the policy will support a more level playing field for the retail sector.”